[Highly educated and ambitious, yet unemployed: a whole generation of young is entering the labour market with little prospect of success. The implications go way beyond individual tragedies as economies with lasting high levels of youth unemployment risk social instability.]

In both the United States and Australia, there is a growing feeling that tertiary education is no longer worth investing in. The reason for skepticism on the part of parents and students is partly a matter of supply and demand; there are now far too many graduates as compared to the number of available jobs – and unemployed youth are lining up at Centrelink.

In 2013 the Australian Bureau of Statistics (ABS) found that 25% of Australians aged 15 to 64 years had a bachelor’s degree or higher qualification. Yet only 68% of employed people aged 20 to 64 years were working in a field of relevance to their highest qualification, indicating the existence of a mismatch between tertiary qualifications and successful employment prospects in the field of one’s choice.

The problem is not restricted to generalist degrees such as the Bachelor of Arts. Even graduates of professional degrees like law have in recent years struggled to obtain work in their field, with one recruiter suggesting that ‘it is the worst time in living history to be a law graduate’. According to media reports, 64% of recent Australian law graduates were not practicing law between 2010 and 2011.

Although according to the ABS only 3% of graduates overall were unemployed, this doesn’t mean graduates are working in a field of their choice. The situation in the US is particularly bleak, with a report from the Center for College Affordability and Productivity claiming that half of America’s recent college graduates work in jobs that do not require a college degree. As an illustration of their findings, the authors report that 15% of taxi drivers had at least a bachelor’s degree in 2010, a dramatic increase since 1970 when the figure was 1%.

The youth unemployment rate (that is, for those aged 15 to 24) in Australia for October 2013 was approximately 13%. In the US, the corresponding rate is nearly 20%. Nevertheless, politicians appear to have no hesitation in pushing more public funding for colleges and universities, and in encouraging education for its own sake without contemplating whether there will be a job at the end of the line. The previous Australian government under Prime Minister Julia Gillard, for instance, set an ambitious goal of having 40% of young Australians holding a bachelor’s degree by 2025. And US President Barack Obama wants the highest proportion of college graduates in the world by 2020.

Young people, regardless of whether they are college educated, often have a common disadvantage when entering the job market: a lack of experience and skills as compared to those who are older. In economic terms, this makes younger workers worth less on the marketplace – they cannot demand high salaries when starting out because they have less bargaining power. And sometimes, their lack of experience and skills combined with average or mediocre grades is such that they will struggle to find any employer willing to hire them, for months and even years despite being willing to learn and improve.

In addition to this proximate cause, there are underlying structural and government-imposed barriers that prevent young people from transitioning from study into employment. One important contributing factor is the rate of taxation in a society; the higher the rate of taxation, the higher the financial burden on businesses and the less likely they are to expand and create jobs. In Australia and the US, the rate of corporate taxation is significant enough to act as a disincentive for those companies faced with the prospect of paying it. The rate in Australia is a flat 30% while the highest nominal rate in the US is 35%.

Excessive regulation can have a similar effect as taxation because it forces businesses to bear additional costs in order to comply with government policy; they may need to hire a lawyer or accountant just to navigate their obligations, for example. Regulations that dictate the circumstances in which employers can fire their employees are an added disincentive to hiring, because employers are reluctant to take on board employees when the law makes it difficult to fire them at a later stage without being exposed to costly claims for unfair dismissal by the employee.

The lifting of millions of Indians out of poverty after the country’s economic reforms in 1991 should have delivered a decisive blow to those who argue that capitalism exploits the poor. Thanks to deregulation, there has been a significant rise in India’s standard of living during the past 15 years. Unfortunately, the same arguments against the free-market persist. Yet the problem is government, not the market.

If governments faced the same discipline that private corporations face, the next election would result in all of India’s politicians being voted out. In spite of grandiose promises, hardly anyone doubts that India continues to remain near the top of the world in corruption and inefficiency. The sad reality is that India has fallen behind the East Asian nations. The subcontinent holds the dubious distinction of having the world’s largest number of poor people, despite the crores of rupees spent to “stimulate” development.

The reforms of 1991 allowed many a chance at life in the middle-class. For the average person, the relaxation of investment laws has meant access to a wider variety of goods and services at cheaper prices. In the past Indians faced restrictions on the importation of foreign cars, and were forced to buy inferior local models such as the Ambassador. Now they have the freedom to choose a Toyota, a Honda or even a BMW, if they so desire. The influx of new brands has meant more productive jobs, as foreign companies have set up factories locally.

Many people shrug their shoulders at the dismal living standards in India and resign themselves to thinking that’s “just the way things are”. This attitude, although understandable, is something to be discouraged. Especially now when the government-caused financial crisis has made Indians a great deal poorer, the urgent need is to examine why it is that – 60 years after independence – Bharat still remains a Third World nation.

The answer boils down to this: petty bureaucrats and gangster politicians have ruined India. They are the reason why this diverse nation of 1 billion isn’t yet an “Asian tiger”. Only if we honestly confront the problems India faces can we devise the proper solutions.

For sure, India’s economy is galloping along at about 8% per year. This is a significant improvement from the so-called “Hindu” rate of 3.5% before 1991. However, there is also much that the growth figures conceal.

Consider, for instance, the fact that no government in India has been able to guarantee a reliable supply of electricity, water or gas. Roads (including many national highways) are in a pitiful state. Ports constantly experience bottlenecks, and train stations and airports are run-down. Underneath the statistics lies a hot-bed of infrastructure and governance problems. Although economic growth is progressing, it is hardly based on sound foundations.

The train system is a good example. Indian Railways, a government company, owns and operates most of the rail network. Indian Railways holds a virtual monopoly, so there’s no incentive for it to improve the quality of its services. Competition is a wonderful thing: it can push businesses to serve the consumer better by lowering prices and improving quality. Yet when government restricts competition, as in the case of India’s railways, the result is inefficiency and a lack of concern for what the customer thinks.

The story is much the same across a whole range of industries in India. Whereas developed nations have privatised some of their utilities (for example, electricity) and opened up markets to competition, the governments of India remain wedded to power and refuse to give up control. But instead of everything being owned by the government, it’d make a lot more sense to let the people of India run their own businesses.

The mistake socialists make is to equate ownership by the government with ownership by “the people”. That is a fallacy. Government does not equal “the people”; to the contrary, it is made up of an elite group that often selfishly pursues its own interests. How many times have we heard of politicians lining their Swiss bank accounts with money illegally stolen from taxpayers? This pervasive corruption is an indictment on the theory that politicians care about those they govern – the reality is they couldn’t care less.

Private businesses, not governments, are the most direct representation of the community. This is because anyone, including you and me, can set up a business. More importantly, private enterprise is voluntary. No business can force you to buy their products. But government, by stripping away alternatives, can take away your freedom of choice. Therefore, we should be encouraging more private enterprise and less government.

Don’t raise salaries to eliminate corruption, just cut the size of government instead.

The political class in India is largely populated by criminals. If the reader doubts me, they need only look at Transparency International’s rating of India, which ranks the country as even more corrupt than China.

Elections, they come and go. But corruption – that is a constant: it never seems to go anywhere. Some have suggested, however, that the way to eliminate corruption is to boost public sector salaries. Supposedly, making government officials richer will make them less tempted to take bribes. But there really is no logical limit as to how far we could push this argument. At what point do we draw the line? $100,000? $500,000?

In Singapore, for instance, ministers receive about $1 million a year. Sure, Singapore is a low-corruption society, but wealthy politicians are not the reason why.

There is really nothing stopping government employees from taking money regardless of how wealthy they are. The one thing we can be confident of is that individuals will pursue their self-interest as they perceive it, and if the probability of detection is low, political corruption will continue.

Consider what happened in Indonesia when judicial salaries were raised. Although the Supreme Court’s budget went from 79.5 billion rupiah in 2002 to 153 billion in 2004, 1.2 trillion in 2005, 2.2 trillion in 2006 and finally 3 trillion in 2007, academics Simon Butt and Tim Lindsey observe that “increased salaries, even combined with strong new corruption laws, have apparently failed to reduce corruption”. The judiciary remains the most corrupt institution in Indonesia.

Increasing salaries just ends up rewarding bad behaviour. Even if some take bribes because their low salaries ‘force’ them to do so, relying on them to stop taking bribes because their salaries have been increased is hardly a foolproof policy. Rather than looting taxpayers to arbitrarily enrich government agents in the mere hope of reducing corruption, what we need is a policy that is guaranteed to get the job done.

And that policy can be summed up in one word: freedom. This means moving towards the free-market, rather than socialism and corporatism. It means eliminating reams of paperwork and unnecessary complexity in the legal system. The ultimate aim is to do away with the need for citizens to supplicate in front of government agents just to set up a business or perform other routine day-to-day tasks.

An example will help illustrate the point. Suppose you wanted to start a business, but came up against a babu who demanded 1000 extra rupees as the price for granting you a license. “Alright”, you think, “I’ll pay him because I really need the income from my business”.

The problem here wasn’t the bribe per se, it was the onerous licensing system that allowed the bureaucrat to exercise power over the small businessman. As David Henderson explains, “A necessary condition for corruption is that someone has power to make decisions for others, decisions that those others can’t perfectly monitor. The reason so much corruption occurs in government is that government officials hand out so much in the form of subsidies, tax breaks, permits and regulatory exceptions”. Therefore, the way to reduce corruption is to start removing discretionary powers that facilitate extraction of bribes.

Now we are in a position to understand why countries such as Hong Kong, Singapore and Australia have achieved such success in stamping out corruption: they invariably tend to prioritize the market economy, at least in comparison to India.

The other argument often used in favour of raising salaries goes as follows: we should pay public sector employees more, because this will attract the best and brightest into politics. This is an equally nonsensical argument. Why would we want to encourage India’s smartest men and women to enter politics? Far better to have them go into private sector jobs where they actually create something of value. Bill Gates has done more to improve the standard of living for the common man through his work in Microsoft than all the prime ministers of India combined.

It should be remembered that politicians in a democracy are inevitably thinking about their short-term careers, rather than what is best for the country in the long-term. As Hans-Hermann Hoppe argues in his book Democracy: The God that Failed, politicians are essentially caretakers who think from one electoral cycle to the next. Thus, it is in their interests to extract the maximum benefits they can from taxpayers before they are voted out at the next election. It is emphatically not in their interests to put in place long-term reforms that will improve the overall health of the nation.

Cicero reminds us that “The more laws, the less justice”. We should heed his words.

Former Indian intelligence chief Ajit Doval admits the experts have failed, yet offers the same solutions that have not worked in the past.

On the 11th of March, I attended a lecture by Ajit Doval held at the University of Melbourne’s Australia-India Institute. Doval spoke on ‘The Challenges of Global Terrorism’ – a topic that he is eminently qualified to speak on given his past role as director of India’s Central Intelligence Bureau.

Assuming one believes the official story about the May 2011 killing of Osama bin Laden by the American military, it would be tempting to think that we are entering an era of safety and that groups such as al-Qaeda are on the brink of being defeated. However according to Doval, such a view is the opposite of the truth. To the contrary, it is time to brace ourselves for a world that is more unsafe than the world which existed prior to the attacks of September 11, 2001.

There are several reasons for Doval’s pessimistic outlook. First, there are the tens of thousands in North Africa and the Middle East who support al-Qaeda and its objectives. The organization has become stronger and its reach now extends further. Al-Qaeda now operates as an almost global organization, despite the efforts of the American Central Intelligence Agency, Federal Bureau of Investigation and equivalent agencies in the United Kingdom and Australia.

The American-led war in Afghanistan against al-Qaeda’s leadership has hurt the organization, yet Doval is worried about what will happen once Western forces have withdrawn from the Middle East: “We thought the antidote (to global terrorism) was cutting off their finances, and the people’s support, but it turns out the antidote was really denying them sanctuaries. They have had sanctuaries in Pakistan in the past. Now if they get a Taliban-influenced government in Afghanistan they could get sanctuaries in Afghanistan again and the situation could be very serious.”

Despite spending billions of dollars and sacrificing hundreds of thousands of lives, experts such as Doval admit that anti-terrorism efforts have not led to stellar results. Yet Doval does not appear to offer any solutions apart from doing more of the same. He wants the US to be harsher on Pakistan for harbouring terrorists, for there to be greater international cooperation and for intelligence capability to be significantly enhanced. But these are all attempts at tinkering with a system that needs radical root-and-branch reform.

Doval and other intelligence chiefs appear to have forgotten one of the fundamental rules of solving crimes – the importance of establishing a motive. In order to ensure the ‘War on Terrorism’ is more successful than the ‘War on Drugs’ or the ‘War on Crime’, that is, in order for it to lead to a definite outcome rather than continuing on indefinitely for another 100 years, it is imperative that the underlying reasons for terrorism be addressed.

There is a wealth of research largely ignored by the heads of the major intelligence agencies that directly addresses the question of how best to prevent individuals from turning to terrorism in the first place. Much of this scholarship is by individuals with significant experience in counter-terrorism and policing.

Michael Scheuer – a former head of the CIA’s Bin Laden unit – argues that Islamic terrorists are angered by America’s support for corrupt and tyrannical Muslim governments, Western troops on the Arabian Peninsula, Western support for Israel, American pressure on Arab energy producers to keep oil prices low, the occupation of Iraq and Afghanistan and the support for Russia, India, and China against their Muslim militants.

In other words, Islamic terror groups are not all irrational religious fanatics. They have rational objectives that capitalize on the public resentment caused by Western meddling in the internal affairs of Arab nations. Such meddling has led to many atrocities against residents who are then inspired to support insurgent groups. Scandals such as Abu Ghraib prison, torture, rapes by American and British soldiers and collateral damage caused by drone strikes are just the tip of an iceberg that goes back to America’s overthrow of the democratically appointed leader of Iran in 1953. It is practical concerns such as these that have allowed al-Qaeda to thrive.

Scheuer’s thesis is supported by Robert Pape of the University of Chicago. Based on an analysis of 315 suicide attacks between 1980 to 2003, Pape finds “little connection between suicide terrorism and Islamic fundamentalism, or any one of the world’s religions...Rather, what nearly all suicide terrorist attacks have in common is a specific secular and strategic goal: to compel modern democracies to withdraw military forces from territory that the terrorists consider to be their homeland”. This ‘logic’ of suicide terrorism applies just as well in Sri Lanka as it does in the US, Saudi Arabia or Iraq.

Lasting gains against terrorism will require all nations to truly understand their enemy. From this understanding will arise a strategy for reducing the support that groups such as al-Qaeda obtain from the public in Arab nations. This can be done without appeasing terrorists, giving up legitimate strategic targets or compromising national security.

The trajectory of economic development in India has not been smooth, nor has it been as rapid as some had hoped it would be. When Indians gained independence from British rule in 1947 they faced two choices as to the path they would take to unleash India’s potential and help the poorest among its people. On the one hand there was the road pursued by the Soviet Union – that of state socialism – and on the other was the United States, which at the time was pursuing a model approximating a market economy where government was kept relatively limited.

Jawaharlal Nehru, the country’s first prime minister and a close friend of Mahatma Gandhi, settled upon the ‘command economy’: the government was to play a leading role in running and managing business enterprises and private actors were to be strictly regulated.

On the other side of Asia, the East Asian nations of Singapore and Hong Kong decided to abstain from Soviet-style socialism and became capitalist instead.

Some fifty odd years later, in light of the disparate performance of the ‘East Asian tigers’ as compared to the Indian subcontinent on important indicators of poverty, social scientists have questioned which was the wiser choice. A growing body of literature has delved into the path that economic development in the Third World takes and has analysed the barriers that stand between the present state of affairs and achieving First World outcomes. To the extent that this research has produced any substantive conclusions it would seem that the following can safely be stated:

· Market orientated reforms beginning with a major reforms package in 1991 can likely be credited for shifting India's rate of growth from the so-called Hindu rate of 3.5 percent per annum to a more rapid 6.1 percent.

· Market orientated reforms can likely also be credited for the reduction in poverty during the course of the 1990s and beyond.

There are some, such as Dani Rodrik, who have expressed scepticism at the extent to which the reforms of the 1990s were responsible for unleashing growth. J. Bradford DeLong argues that the conventional account of India is wrong in many ways. He documents that growth took off not in the 1990s, but in the 1980s. Other sceptics have gone further and entirely reject the idea that free-market reform brings about benefits at all – for them, neoliberal policies deregulating the economy are anathema and perceived as something to be resisted.

There have also been inquiries into specific programs established by Indian governments. Given India’s high rates of poverty, welfare programs have been a focal point for many scholars interested in evaluating the effectiveness of these programs in helping lift low-income individuals to a better quality of life. The National Rural Employment Guarantee Scheme is one such initiative that has been closely scrutinised, and the results of numerous studies on the scheme have helped inform poverty alleviation policies more generally. The scheme started in 2006 with the promise of work when demanded for one member of each family for up to 100 days in a year – however the actual results have been somewhat less impressive, with about 50 million people getting an average of 50 days work in 2011. Problems with ineffective targeting, leakages, poor quality asset creation etc have beset the scheme but it continues to attract millions of dollars in funding.

The India Policy Institute aims to provide an overview of policies established to tackle poverty in India, and secondly, to consider their effectiveness. I would highly recommend that readers browse the resources available at the Institute's website: indiapolicy.org.